Government Budgets

[op-ed snap] Falling short of aspirations

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Government budget and allocations for various sectors and schemes.

Context

The Budget can be judged in terms of its effect on rural demand, investment and private sentiments– all critical elements for recovery. While the Budget offers hope on the last count, it leaves much to be desired on several other parameters.

Skill development allocation- 3000 Crore

  • Unmet Demand: There is a huge, unmet demand for teachers, paramedical staff and caregivers, and skilled workers.
    • Need for quality education and skills: Well-paying jobs are created in the organised services and industry but require candidates with quality education and skills.
    • Both elude India’s youth due to the poor quality of education and lack of opportunities to acquire practical skills.
    • Skilling will require massive investment and concerted efforts.
    • What could have been done? The Budget could have given tax incentives to companies to provide internships and on-site vocational training to unemployed youth.
    • The country cannot afford to let the world’s largest workforce waste this way.

On flagship welfare schemes

  • The MGNREGA is allocated ₹61,500 crore, which is less than ₹71,000 crore for the current fiscal year.
  • PM-KISAN: Going by the last year, disbursement under the PM-KISAN will also be less than budgeted, unless the beneficiary base is expanded.
  • Good schemes for increasing demand: These two schemes are good instruments for income transfers to small and marginal farmers, landless labour who spend most of their income and generate demand for a wide range of goods and services.
    • Higher disbursement under these schemes would have benefited most sectors of the economy. Budgetary allocations for health and education are also well below what is needed.
  • Micro-irrigation schemes for 100 water-stressed: Focus of schemes such as micro-irrigation schemes for 100 water-stressed districts is welcome and so is a modest increase in allocations for agriculture and rural development schemes.
  • Rural roads, cold storage, and logistical chains are crucial for the growth of income and employment in rural India, as the multiplier effects of rural infrastructure investment on growth and employment are large and extensive.
  • ₹1.7 lakh crore for transportation infrastructure: The allocation of ₹1.7 lakh crore for transportation infrastructure is also a welcome step. If the public investment infrastructure actually materialises, it will lend credence to the government’s stated commitment to revive the investment cycle –to spur job-creating growth.
  • To pull in private investment, public funding should be front-loaded in under-implementation projects.
  • Small irrigation and rural road projects are also relatively easy to complete and deliver immense benefits to several sectors.

 Bonds Market development  and startups

  • Need for the corporate bond market: The fundamental problem of infrastructure finance is the asset-liability mismatch which can be addressed only by developing a vibrant ‘corporate bond market.
  • No focus on the corporate bond market: The focus of the Budget is the multiple schemes for government bonds mainly through additional room for foreign portfolio investors and exchange-traded funds in government bonds.
    • Need for the well-developed market: Government’s moves are welcome but not enough. A well-developed bond market should draw upon-
    • Domestic insurance funds.
    • Pension funds and
    • Mutual funds-which are capable of investing in corporate bonds across different schemes.
  • Startups: The other leg of the “aspirational” Budget is the startups.
    • Some relief on the tax they have to pay and on taxation of the Employee Stock Option Plans is welcome.
    • Reluctance to abolish angel tax: But the reluctance to abolish the angel tax that results in harassment of start-ups and their investors is unfathomable.

Scheme for NBFC

  • Allowing NBFCs into TReDS: Another welcome feature is the scheme to allow the non-banking financial companies into the Trade Receivables Discounting System (TReDS).
    • TReDS is an ecosystem that aims to facilitate the financing and settling of trade-related transactions of small entities with corporate and other buyers, including government departments and public sector undertakings.

Changes in provisions for SMEs and their problems

  • Audit threshold increased to 5 crore: To reduce the compliance burden on small retailers, traders and shopkeepers who comprise the Small and Medium-sized Enterprises (SMEs) sector, the threshold for audit of the accounts has been increased from ₹1 crore to ₹5 crores for those entities that carry out less than 5% of their business transactions in cash.
  • Restructuring window increased: A provision in the budget extended the window for the restructuring of loans for micro, small and medium-sized enterprises till March 31, 2021.
  • Problems faced by the SMEs
    • Input tax rate higher for input than for the final goods: For many products produced by these enterprises, the tax rates are higher for inputs than the final goods.
    • High taxes on imports and exports: In addition, many SMEs suffer from high taxes on imports of raw material and exports of intermediary services by them.

Other provision made to revive the private sector 

  • Recognising the need to revive the dying spirit of the private sector, several provisions have been made in the budget to revive the spirit of the private sector like-
    • Decriminalisation of several civil offences by firms under the Companies Act.
    • The abolition of dividend distribution tax (DDT).
    • The assurance that tax-related disputes will be considered with compassion.
    • The scheme to reimburse to exporters assorted duties, such as excise duty on transport fuels and electricity.

Conclusion

Everything considered the future of the economy will turn on whether the government delivers on the promises of public investment and the promises made to different sections of society including the taxpayer and companies. When it comes to reviving private sentiments, actions will speak much louder than the budgetary promises.

 

 

 

 

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